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Nov 25, 2015

China securities regulator eases up on select restrictions

Government moves to end restrictions imposed during summer volatility

China’s securities regulator has lifted an order enforced during the summer volatility that obliged brokerages to buy more shares than they sell in proprietary trading. The news coincides with probes into two of the country’s largest brokerages.

The proprietary trading requirement for brokers is the second regulation lifted after a flurry of regulation changes instituted between June and August as the Shanghai Stock Exchange Composite Index plunged 40 percent. On November 6 the China Securities Regulatory Commission (CSRC) ended a prohibition on IPOs in the country that it had instituted in July.

The news – a sign that China is regaining confidence in its markets after the Shanghai index regained almost half of its summer loss – comes amid a renewed crackdown on corruption in the securities industry. Anti-corruption authorities in Shanghai announced on Tuesday they were checking into trading of Haitong Securities and Guotai Junan Securities, two of the largest brokerages in the country, as part of checks into 14 companies and six universities.

At the start of this week, the Hong Kong brokerage arm of Guotai Junan Securities, Guotai Junan International Holdings, said it had lost contact with its chairman and chief executive, Yim Fung. On Wednesday the Securities Association of China (SAC), which is supervised by the CSRC, said CITIC Securities, the biggest brokerage in the country, overstated equity swap deals carried out during the summer volatility by more than 1 tn yuan ($156 bn). The SAC did not accuse CITIC Securities of wrongdoing, but said it was investigating.

An investor relations representative told Reuters in an interview that the overstatement was not included in the company’s earnings reports so it will not affect profits. He said the overstatement, which came in statistical reports produced by the brokerage, contained errors caused by a system upgrade and the figures would be corrected by the end of this month.